Hollande’s travails in France could imperil Europe

By Paul Krugman / NY Times News Service

French President Francois Hollande, president since 2012, coulda been a contender. He was elected on a promise to turn away from the austerity policies that killed Europe’s brief, inadequate economic recovery. Since the intellectual justification for these policies was weak and would soon collapse, he could have led a bloc of nations demanding a change of course. However, it was not to be. Once in office, Hollande promptly folded, giving in completely to demands for even more austerity.

However, let it not be said that he is entirely spineless. Last week, he took decisive action, but not, alas, on economic policy, although the disastrous consequences of European austerity grow more obvious with each passing month, and even European Central Bank President Mario Draghi is calling for a change of course. No, all Hollande’s force was focused on purging members of his government daring to question his subservience to Berlin and Brussels.

It is a remarkable spectacle. However, to fully appreciate it you need to understand two things. First, Europe, as a whole, is in deep trouble. Second, however, within that overall pattern of disaster, France’s performance is much better than you would guess from news reports. France is not Greece; it is not even Italy, but it is letting itself be bullied as if it were a basket case.

On Europe: Like the US, the eurozone — the 18 countries that use the euro as a common currency — started to recover from the 2008 financial crisis midway through 2009. After a debt crisis erupted in 2010, some European nations were forced, as a condition for loans, to make harsh spending cuts and raise taxes on working families. Meanwhile, Germany and other creditor countries did nothing to offset the downward pressure, and the European Central Bank, unlike the US Federal Reserve or the Bank of England, did not take extraordinary measures to boost private spending.

As a result, the European recovery stalled in 2011 and has never really resumed.

At this point, Europe is doing worse than it did at a comparable stage of the Great Depression. And even more bad news may lie ahead, as Europe shows every sign of sliding into a Japanese-style deflationary trap.

How does France fit into this picture? News reports consistently portray the French economy as a dysfunctional mess, crippled by high taxes and government regulation. So it comes as something of a shock when you look at the actual numbers, which do not match that story at all. France has not done well since 2008 — in particular, it has lagged Germany — but its overall GDP growth has been much better than the European average, beating not only the troubled economies of southern Europe, but creditor nations like the Netherlands.

French job performance is not too bad. In fact, prime-aged adults are a lot more likely to be employed in France than in the US. Nor does France’s situation seem particularly fragile. It does not have a large trade deficit, and it can borrow at historically low interest rates.

Why, then, does France get such bad press? It is hard to escape the suspicion that it is political: France has a big government and a generous welfare state, which free-market ideology says should lead to economic disaster. So disaster is what gets reported, even if it is not what the numbers say.